Thursday, January 28, 2010

Billionaire investor George Soros said China’s stock market is “overheating” and policy makers should seek to temper its gains.

“Right now, the Chinese market is overheating and they have to slow it down,” Soros said in an interview with Bloomberg Television today at the World Economic Forum’s annual meeting in Davos, Switzerland. “It remains to be seen how successful they are.”

After surging 80 percent in 2009, China’s benchmark Shanghai Composite Index has fallen this year as the government reins in credit growth to avoid asset bubbles and slow the world’s fastest-growing major economy.

The founder of the $25 billion hedge-fund firm Soros Fund Management LLC said there is “no attractive alternative” to the dollar, noting the U.K. is in “worse shape” than the U.S. and the euro has its “own problems.”

Soros repeated that the yuan is undervalued and allowing it to strengthen would be a “very appropriate thing” for the Chinese government to do. “If they don’t do it, there will be increasing pressure from the United States,” he said.

His concern about the value of Chinese stocks reflects the results of this month’s poll of investors and analysts who are Bloomberg subscribers, which showed 62 percent of respondents view China as a bubble. Three out of 10 investors said the country posed the greatest downside risk, ranking it the second- riskiest market behind the European Union.

Greek Deficit Woes

Greece will tackle the EU’s largest budget deficit without leaving the 16-nation euro area, Soros said. “I’m actually confident they will make it,” he said, adding that the alternative of quitting the single-currency bloc would be more painful than paring the debt.

Soros said the world economy remains at risk of a double- dip recession, citing any premature reversal of economic stimulus by policy makers as a trigger for a renewed slump. “It might dip again if you withdraw the stimulus too soon,” he said.

The investor who made $1 billion selling the British pound in 1992 urged policy makers to coordinate their regulation of finance or risk a splintering of markets.

“If we fail to do that, the global markets are going to break up,” Soros said. “Unless you have these common rules, each country is going to protect itself.”